Monday, April 4, 2016

Updated January 2017International trade is a key part of
the global economy, however, trade agreements have had a significant impact on
American workers and the overall American economy. As you will see in
this posting, despite the promises of Washington, international trade
agreements have left American workers far worse off and have made Corporate
America far wealthier than would have been the case had the agreements not been
negotiated and signed.

"Trade Agreements can create opportunities for Americans
and help to grow the U.S. economy."

As you will see in this posting, there is no
doubt that trade agreements can create opportunities for some
Americans.

The United States has 14
free trade agreements with 20 nations, most of which are built on the
foundation of the World Trade Organization Agreement. Here, in
chronological order, are the key trade agreements from the late 1980s and 1990s
that had a significant impact on the American economy:

The 1999 trade deal with
China was to facilitate China's entry into the World Trade Organization.
Even though the United States already had a massive trade deficit with
China of approximately $68 billion in 1999, here's
what Bill Clinton had to say about establishing Permanent Normal Trade
Relations with China back in 2000:

It's particularly ironic
that Alan Greenspan, creator of the tech bubble, is accompanying the
former president.

Here is the partial text of a speech that President Clinton gave on March 9, 2000 about the China trade bill:

"The W.T.O.
agreement will move China in the right direction. It will advance the goals
America has worked for in China for the past three decades.

And of course, it will
advance our own economic interests. Economically, this agreement is the
equivalent of a one-way street. It requires China to open its markets -- with a
fifth of the world's population, potentially the biggest markets in the world
-- to both our products and services in unprecedented new ways. All we do is to agree to
maintain the present access which China enjoys.

Chinese tariffs, from
telecommunications products to automobiles to agriculture, will fall by half or
more over just five years.

For the first time, our
companies will be able to sell and distribute products in China made by workers
here in America without being forced to relocate manufacturing to China, sell
through the Chinese government, or transfer valuable technology -- for the
first time. We'll be able to export products without exporting jobs.

Meanwhile, we'll get
valuable new safeguards against any surges of imports from China. We're already
preparing for the largest enforcement effort ever given for a trade
agreement.

If Congress passes
P.N.T.R., we reap these rewards. If Congress rejects it, our competitors reap
these rewards. Again, we must understand the consequences of saying no. If we
don't sell our products to China, someone else will step into the breach, and
we'll spend the next 20 years wondering why in the wide world we handed over
the benefits we negotiated to other people." (my bold)

So, let's see how these
three "job creating" trade agreements have worked out. Here is a chart from FRED showing the balance
on current account:

The current account is
defined as the difference between the savings of a nation and its investment
and forms an important indicator of the health of the economy.
Investopedia defines it as "the sum of the balance of trade (goods
and services exports minus imports), net income and net current transfers".
While a current account deficit doesn't necessarily mean that an economy is weak, it
means that the economy (in this case, the U.S. economy) is a net debtor to the
rest of the world. It is investing more than it is saving and is using
resources from other economies to meet its domestic investment and consumption
needs. As you can see from the chart above, the United States has had a
negative balance on its current account since the early 1980s and the situation
worsened in two stages; first in the mid-1990s when NAFTA took effect and
manufacturing fled to low-cost Mexico and second in the early 2000s when China
began to be a global economic force thanks to its brand spanking new membership in the WTO.

What impact has this had
on Americans? Let's focus on the period since the beginning of 2000 and
look at what has happened to employment in production occupations:

Back in 2000, around 11.5
million Americans were employed in production occupations. Currently,
only 8.32 million Americans are employed in production occupations, down nearly over 32 million or 27 percent.

Now, let's look at what
has happened to two key economic statistics; corporate profits (ex-financial)
and average hourly earnings of production and non-supervisory employees both
indexed to the year 2000:

Over the sixteen year
period, corporate profits have risen by 161 percent while average hourly
earnings have risen by only 55 percent.

Here is the same data
displayed showing the percentage change on a year-over-year basis:

You have to look pretty
carefully to see the blue line that lies along the axis, showing us that
average hourly earnings have barely budged on an annual basis, particularly
when compared to corporate profits which, for the most part save immediately
before and during the Great Recession and in recent quarters, have grown at
levels that are far higher than wages.

Since 2004, the
percentage of Chinese workers employed in the nation's industrial sector has
grown from 22.5 percent to a high of 30.3 percent in 2012.

Here's what has happened to wages in China's
manufacturing sector since 2006:

Unlike their American
counterparts, workers in China's manufacturing sector saw their wages nearly
triple between 2006 and 2014 and if we go back further to the mid-1990s just
before the WTO agreement was signed, China's manufacturing sector has
experienced wage growth of 1000 percent as shown on this graphic:

A history of trade
agreements made by a succession of governments in Washington have proven negatively
impact American workers, particularly in the manufacturing sector.
Corporate America has been the biggest beneficiary; lower cost offshore
production has proven to be "the profit pot of gold" at the end of
the trade rainbow. In fact, the situation for American workers is so dire
that the United States Department of Labor Employment and Training
Administration established a Trade Adjustment Assistance
program 40 years ago for American workers who have been displaced by foreign
workers. The TAA program was reauthorized for another six years on June
29, 2015 by the current president; the extension was buried in H.R. 1295 - Trade Preferences Extension Act of 2015.
The Congressional Budget Office estimates that the extension will cost $1.8 billion over the period between 2015 and
2020. This begs the question; if international trade deals are such a great opportunity
for American workers and the U.S. economy, why is the Trade Adjustment
Assistance program necessary? This is a particularly pertinent question given the ongoing negotiations over the massive Trans-Pacific Partnership and is an issue that should be receiving far more attention from the remaining crop of presidential candidates.

3 comments:

A history of trade agreements made by a succession of governments in Washington have proven negatively impact American workers, particularly in the manufacturing sector. Corporate America has been the biggest beneficiary; lower cost offshore production has proven to be "the profit pot of gold" at the end of the trade rainbow. That said it all.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.